In the past few years, a slew of American cities have introduced new taxes targeting drinks with added sugar—efforts that have met considerable backlash from the beverage industry. Nine US jurisdictions including San Francisco and Philadelphia currently impose sugar-sweetened beverage excise or sales taxes, increasing the price of sugary drinks by up to 2 cents per ounce. In response, the American Beverage Association has ramped up its efforts to enact state-level SSB laws preempting further taxes on the products it represents.
These taxes, colloquially known as “soda taxes,” could be an important tool to help improve public health across the US, suggests the United States Naval Academy’s Scott Kaplan and a team of researchers that includes economists and medical doctors. Conducting a large-scale analysis of sugary drink excise taxes implemented across five big US cities, they find that the shelf price of SSBs (which include sodas, juices, sports drinks, and any other beverages with added sugar) increased by nearly a third on average in the two years following the introduction of soda taxes. This price hike was followed by a similar drop in sales—and no evidence that consumers were stocking up on cheaper drinks elsewhere.
This is in line with what other studies have found at the city level. “Our findings are robust at the broader, multicity level, which suggests that sugary drink taxes may work well if they are implemented at state or national levels,” says Kaplan.
Across several cities, the research finds that a tax on sugar-sweetened beverages led to higher shelf prices and lower sales of taxed products.
SSBs play a critical role in the love affair Americans have with sugar—they ingest about 17 teaspoons every day on average, according to a report put out by the US Department of Agriculture and the US Department of Health and Human Services. That’s more than twice the maximum amount recommended by the American Heart Association. A typical 12-oz. SSB contains 9 teaspoons of added sugar. More than two-thirds of all US adults consume such drinks at least once a day, accounting for about a quarter of added sugar in their diets, says the Centers for Disease Control and Prevention. This has led public-health experts and some policy makers to propose SSB taxes, which were first introduced in the US in 2014.
Individual city-level studies, including a previous one by Kaplan and others, have found the taxes to be effective not only in reducing the purchase of soda at a local level but in saving costs associated with improving negative health outcomes. Kaplan’s current study looked across multiple cities to get a more comprehensive sense of the implications for broadly scaling SSB taxes.
Using NielsenIQ Retail Scanner Data housed at Booth’s Kilts Center for Marketing, they focused on stores in Philadelphia, San Francisco, and Seattle, as well as in Boulder, Colorado, and Oakland, California, between 2012 and 2019. They then used advanced statistical methods to create “synthetic cities”—counterfactual groups constructed using data from untaxed cities—to pinpoint the overall impact on prices and volume sold of SSBs. The study also looked at purchases in bordering zip codes where taxes hadn’t been introduced, to see whether consumers had gone elsewhere to buy sugary drinks.
Overall, Kaplan and his coresearchers find that sugary drink prices rose 33 percent and sales fell by a corresponding 33 percent across cities where an SSB tax was implemented. Moreover, the researchers find no evidence that consumers headed to nearby areas unaffected by taxes to shop there instead. This suggests that SSB taxes are effective in reducing consumption.
Federal and state policy makers should take note, the researchers argue. Since sugar consumption is directly tied to heart disease, diabetes, strokes, obesity, and other cardiometabolic diseases, less sugary drink consumption on a national level should yield significant savings in healthcare costs, they write. Another research team led by Tufts University’s Parke Wilde argued in a 2019 study that a national soda tax could cut healthcare costs over the average American lifespan by $270 per person, or $45 billion in all. The average tax payments and the healthcare cost savings both were higher for consumers with lower incomes.
The work of Kaplan and his coresearchers lends weight to this argument. Says Kaplan, “Our findings suggest that these taxes have the potential to deliver significant health benefits and costs savings to society.”
*The findings, interpretations, and conclusions expressed here are entirely those of the authors and do not necessarily reflect the views or the official positions of the Department of the Defense or the US Naval Academy.
People are much more aware of how inflation erodes their savings than how it also lowers the real value of debt.
For Consumers, Inflation Has an Upside
An expert panel discusses some of the most important risks and trends facing investors, executives, and policy makers.
What Will Move the Global Economy in 2024?
Attitudes and expectations about remote work have shifted globally.
Infographic: How the WFH Picture Varies around the WorldYour Privacy
We want to demonstrate our commitment to your privacy. Please review Chicago Booth's privacy notice, which provides information explaining how and why we collect particular information when you visit our website.